Chapter 2 Payment dates, interest and penalties Flashcards
payment dates, interest and penalties - personal tax
Tax for the year is made in two stages. You make two payments on account of income tax, first is made on 31 January in the relevant tax year and the second is made six months later, on the 31 July, following the tax year. A taxpayer will submit their tax return no later than 31 January following the tax year, so will have a final balance and may have to make a balancing payment. Only exception is where the return was not issued until after 31 October, then this is due 3 months after the issue of the return.
Each payment on account for a tax year is 50% of the tax due from the previous tax year. Payments on account represent income tax and not in respect of capital gains tax. CGT is usually paid on the 31 January following the tax year, for 19/20 this will be paid on 31 January 2021.
Interest on late tax – interest run from the normal due date until the date of payment. HMRC charge interest at an interest rate (calculated as bank base rate plus 2.5%), currently 3.25%. penalty of 5% of the unpaid tax is charged. A further 5% of the penalty is charged if it is 5 months after the first penalty is charged, then an additional 5% if tax is paid 11 months after the first penalty is charged.
Reasonable excuse – when penalties are correctly charged the only grounds for appeal are, they had a reasonable excuse. The term is not defined in legislation but says a reasonable excuse is not having insufficient funds and relying on a third party is also not an excuse, unless the taxpayer took reasonable care. Examples of a reasonable excuse are:
• the payment was posted in good time but arrived later or never arrived due to disruption with the postal service or other factors beyond the taxpayer’s control.
• If the taxpayer suffered serious illness or bereavement which prevented them from attending to their tax affairs in sufficient time
Partnerships – a partnership does not pay tax on its profits. The individual partners tax pays on their share which are reported on their individual tax returns. The individuals’ share of the partnership profit it taken into account when calculating their total tax liability for a year and any payments on account due.
